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Tuesday, July 8, 2014

The job guarantee

It is apparent that more work is needed to crack the hard
shell of misinformation regarding how money works that pervades both sides of
the political spectrum, media, and the general public. However, a number of
readers have begun to get it and are now looking for some practical
application. I’ll return to some more “educating” soon, but first, what follows
is a basic framework for the job guarantee so that those who are running ahead
have something to build upon.

Why a job guarantee?

As we have discussed, there is NO natural rate of
unemployment. Unemployment is completely unnatural. It is a direct result of
the way modern monetary and capitalist market systems function, as evidenced by the fact that there was no
unemployment in traditional or agrarian societies. Money causes unemployment
since people must earn it to survive and pay taxes.

Modern capitalist economies never have and never will attain
full employment. I won’t go over the reasons again here, but the evidence is
all around us and today and throughout history.

There is no valid and just economic, social or political
reason for a nation to leave productive labor unemployed. Please let me know if you
can find one. Aside from the loss of real tangible value to society and the
economy (how many lives, including their own, would be made better if the tens
of millions of willing workers were able to contribute productively to society
and the economy), unemployment has also been linked to crime rates, drug
addiction, family breakdowns, mental health problems, and a host of other social
ills.

So what’s the alternative? A job guarantee would solve a
host of social and economic problems, increase the real wealth of a nation, and
bring greater price and economic stability. It can most certainly be afforded –
in fact it costs us in all kinds of ways NOT to implement such a system. Aside
from the fact that affordability simply isn’t an issue for currency-issuing
nations, the program’s nominal costs are actually very minimal when one
accounts for the offsetting savings from taxes received and reduced government
welfare spending; and they are net positive for the overall economy when one
accounts for fiscal stimulus plus the multiplier effect on the private sector
economy and the mitigation of productivity losses from recessions. Recent
estimates of a simulated job guarantee in the US indicate that GDP would
increase by over one trillion dollars. That's real enough!

So what is the job guarantee?

Simply a
guarantee of a job to all who are ready, willing, and able to work.

When the economy is in a downturn and the private sector
lays off workers, the program will expand. When the economy recovers, the
private sector will hire them back and the program contracts. It functions as a
buffer stock of labor (today we have a buffer stock of unemployed people). In the interim, everyone has a job and ideally receives
on-the-job training and skill development.

The job guarantee recognizes that full employment should be
the goal of monetary and fiscal policy, and ensures that the nation’s
productive workforce does not suffer decline and loss of human
capital/productive skills during business cycle downturns.

There is also a recognition that the government can afford
anything for sale in its own currency (simply by crediting bank accounts as it
does with most spending), and that “buying” the nation’s unused labor is
non-inflationary since these are resources not otherwise being “used” – in the
same way that buying surplus inventory isn’t inflationary.

Yes, it’s really quite simple, but of course there are important
details to consider. Let’s dispel a few of the common concerns by outlining how
the program could work.

The basic framework

The job guarantee approach that is often advocated goes
something along these lines:

The job
guarantee is for people the private sector does not want to hire at any given
time. If the private sector desires and can afford to hire them again, they can
simply offer them a better job. It is not about the government hiring away
workers in competition with the private sector.

The
government would pay for the program costs and wages, but workers would still
be taxed as other workers and the government would see a significant offset in
spending from other programs.

Those in
the job guarantee program would not be government employees. Charities, not-for-profit
organizations, and other local organizations – possibly municipalities,
counties, etc. – would offer job opportunities through the program. The pool of
previously unemployed workers would now be able to help serve the community in
a host of practical ways that enhance the overall quality of life.

All
employment opportunities would be managed locally throughout the country. Local
organizations and leaders know what is needed most in their communities and who
can best qualify to provide the work and training needed. They also have a
vested interest in seeing successful outcomes.

The job
guarantee would provide a basic living wage and benefits to all participants.
This would effectively eliminate the minimum wage and create a floor for
private sector compensation, benefits and work conditions.

While
there would likely be a modest one-time impact to costs from the
implementation, the program would not be inflationary (i.e. there is no
wage-price spiral effect). The degree of price changes would be a result of
where the wage/benefit level is set, which can be debated.

Employees
would be given on-the-job training. The fact that they remain employed and even
may improve their skills helps keep them more employable for the private sector
as it recovers.

Employees
would have performance reviews and can still be fired. They would be given
several opportunities to succeed but must meet normal employment requirements
to stay in the program.

Only a failure of imagination would prevent all employable
workers from being productive. Build houses for the low income, improve or add
city parks and public spaces, provide after school and child care services,
staff libraries and museums, offer free music and art lessons and other
educational opportunities to underserved areas, build community gardens,
develop community makers spaces, provide personal visits and care for the
elderly, restore historic sites, install solar panels on public property, …

So let’s get creative. What does your community need most? What
skills are available amongst the pool? How can community and organizational
leaders collaborate to achieve the most benefit?

Remove
hundreds of billions from unemployment insurance payments, food and nutrition
assistance programs, incarceration costs, and many other welfare programs.

Significantly
increase GDP and overall demand for goods & services due to the additional
spending from a fully hired population (note that those at the lower end of the
wage spectrum spend a higher proportion of their income and so have a higher
multiplier effect on the economy).

Enhance
the lives of millions of currently unemployed and underemployed workers,
providing them with an opportunity to provide for their families and improve
their skills and lives.

And so
much more…

When something makes this much sense, it’s worth sharing!
Spread the word!

For those who wish to dive into the literature on the
subject there are different names given to various different proposals along
these lines. The most common terms are the Employer of Last Resort or ELR
(Minsky), Right to Employment (Harvey), and the Job Guarantee (Mosler, Wray,
Forstater, Murray, and others).